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The Secrets To An Economic Recovery

Dec 30, 2008

A substantial economic rebound, particular as it relates to U.S. manufacturing, will occur in 2009 only if four factors trend in a positive way, says the economic analyst for the Fabricators & Manufacturers Association, International (FMA).

“Many factors come into play when predicting what must take place to spur growth, and one could go slightly balmy evaluating them all,” says Dr. Chris Kuehl from FMA. “However, four areas do stand out as the best barometers -– developments in the financial sector, consumer confidence, exports and commodity prices.”

1. Financial sector needs to stabilize. “This has been the goal of the Federal Reserve and Treasury for months, but there has been scant progress,” says Kuehl. “These efforts are based on monetary policy, so they do take awhile to bear fruit. We should start to see marked improvement by end of the first quarter, including in the banking sector, such as some dramatic reduction in the London Interbank rates, more movement in the money markets and banks more willing to do business with one another.” Kuehl believes lower interest rates and extra liquidity should begin to make a difference in the first half of 2009.

2. Recovery of consumer confidence. Acknowledging this is difficult to predict, Kuehl asserts prices and jobs play leading roles. “For the moment, the price situation is very positive as commodity prices have tumbled to record lows,” he says. “This should continue in the short term, with even food prices beginning to decline. But the job front is different. Major layoffs that have been announced almost daily make consumers extremely nervous. If major job losses are behind us, people can catch their breath and assess. Then, if job prospects begin to improve, the consumer mood will quickly shift.”

3. Regain lost luster of export market. The surging U.S. export market in 2008 faded as the dollar gained against an even weaker Euro, and the rest of the world experiences a down economy, according to Kuehl. “The dollar’s current strength is likely short-lived, though, and that will promote U.S. trade,” he says. “More demand also is required, and can happen if the Asian states and India succeed at stimulating their economies.”

4. Commodity prices remain low. “This is currently the best news available for the manufacturing community as prices for every industrial input have fallen for the past few months,” Kuehl says. “Oil is down below $50 a barrel, and few see it recovering much in the next several months. Steel is down, and so are the other metals, everything from copper to nickel to aluminum.”

“Although, in general, it is likely that the first quarter of 2009 will be in negative territory, and the second quarter is something of a toss up, there is good news soon thereafter,” says Kuehl. “There is a consensus the third quarter will show some significant improvement with the fourth quarter also likely to end up positive.”